CFPB Proposes Mortgage Rule Changes

The Consumer Financial Protection Bureau Monday proposed some tweaks to its January 2013 mortgage rules, addressing concerns that had been raised by credit unions.

Among the seven clarifications is a proposed change regarding the ban on financing credit insurance premiums included in the CFPB’s mortgage originator compensation rule. The provision caused confusion because its vague language could potentially be applied to transactions other than the single-premium credit insurance premium it was intended to address.

Monday’s proposal would clarify what constitutes financing of credit insurance premiums by a creditor–particularly as the rule applies to “level” or “levelized” premium–where the monthly premium is the same each month rather than decreasing along with the loan balance. The proposal would also provide guidance on when credit insurance premiums are considered to be calculated and paid on a monthly basis for purposes of an exclusion from the statutory prohibition.

The CFPB, following a request from CUNA, had previously announced it would delay the original June 1, 2013 effective date for its credit insurance premium ban, is seeking comment on when that effective date should be. In a release, the CFPB suggested Jan. 10, 2014 or earlier, to give creditors time to adjust billing practices.

The proposal also addresses concerns raised by small banks and credit unions regarding exceptions for rural lenders. In particular, community banks that serve agricultural communities that don’t qualify as rural under CFPB rules voiced concern about the rule. Under the proposal, the CFPB would extend an exception to a ban on high-cost mortgages featuring balloon payments to small creditors that do not operate predominantly in rural or underserved counties, so long as the loans meet certain restrictions. The CFPB is also considering revising an exemption from a requirement to maintain escrows on certain higher-priced mortgage loans for small creditors who operate predominantly in rural or underserved areas and that also meet other criteria. To prevent creditors from losing eligibility for the rural exemption in 2014 due to changes in which counties are defined as rural, the proposal would extend availability to small creditors that qualified in any of the previous three calendar years.

Another proposed change to the CFPB’s mortgage originator rule would clarify the circumstances under which tellers or other administrative staff act as loan originators when engaging in routine customer service activities that involve mortgages.

The CFPB is also considering making it easier for servicers to offer short-term forbearance plans for delinquent borrowers who need only temporary relief without going through a full loss mitigation evaluation process. For example, under the proposal, a servicer could provide a two-month forbearance to a borrower who is suffering a short-term hardship.

Other provisions clarify procedures for obtaining follow-up information on loss-mitigation applications, and additionally clarify the points and fees thresholds for manufactured housing retailers.

Finally, the CFPB is seeking comment on whether to change the effective date for portions of its loan originator rule from Jan. 10, 2013 to Jan. 1.

Industry will have only 30 days to provide comments to the CFPB. Comments are due July 22.